WEBVTT - Surveillance: Commodities Surge With Currie 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa brown Witz Jailey. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:28.720 dot com, and of course on the Bloomberg terminal. This 0:00:28.880 --> 0:00:31.120 is the interview of the day, folks on what we're 0:00:31.160 --> 0:00:34.879 all witnessing, which is across the board commodities lift. Jeffrey 0:00:34.920 --> 0:00:38.239 de Graff of Renaissance emailed me yesterday and said, hey, stupid, 0:00:38.640 --> 0:00:40.800 look at the softs And I did that. I looked 0:00:40.800 --> 0:00:43.320 at wheat corn and the graph is right there up 0:00:43.360 --> 0:00:46.880 as well. Nobody's nailed this like Jeffrey currys at Goldman 0:00:46.920 --> 0:00:50.559 Sachs Global Head of Commodities Research, and just nailed this. 0:00:50.640 --> 0:00:54.640 Commodity lift. Jeff Curry, I want to go to your 0:00:54.680 --> 0:00:58.520 microeconomics at Chicago. I want you to explain to our 0:00:58.560 --> 0:01:03.640 audience the constraint so supplied build that so many commodities have. 0:01:04.240 --> 0:01:08.000 These are tangible things and they are constrained on the 0:01:08.040 --> 0:01:12.800 supply side, where there's some serious in elasticities. Well, we 0:01:12.880 --> 0:01:15.520 have on the supply side. We like to call it 0:01:15.560 --> 0:01:18.560 the revenge of the old economy. We have not invested 0:01:19.000 --> 0:01:22.959 in old economy production capacity in some cases five to 0:01:23.040 --> 0:01:25.720 ten years um. The reason why it returns in the 0:01:25.760 --> 0:01:29.440 new economy were so much better that capital dot redirected 0:01:29.480 --> 0:01:33.399 towards tech. Then you overlay E S G issues on this. 0:01:33.720 --> 0:01:37.839 These sectors are severely start to capital and you take oil. Capex, 0:01:37.880 --> 0:01:39.800 depending on where you are in the world, was down 0:01:39.880 --> 0:01:43.000 foty to sevent in the first half of last year. 0:01:43.319 --> 0:01:46.120 Tell us about the medals. I mean, I understand copper, 0:01:46.160 --> 0:01:49.040 and we're you know, John and I arguing about Jeff Curry. 0:01:49.080 --> 0:01:52.240 Let's stop the show. Do you quote London copper or 0:01:52.280 --> 0:01:59.160 do you quote Chicago copper? London copper. Very good, there 0:01:59.160 --> 0:02:02.640 we go, John, So copper, we get coppers moving up. 0:02:02.680 --> 0:02:05.920 Tell us about the other medals where if price goes up, 0:02:06.000 --> 0:02:09.800 supply doesn't come on, does it. Well, it takes anywhere 0:02:09.919 --> 0:02:12.040 from five to ten years to bring on a new 0:02:12.080 --> 0:02:15.320 copper mine. It's the last of the old school commodities 0:02:15.360 --> 0:02:17.639 that you still dig out of the ground. And that's 0:02:17.680 --> 0:02:20.360 where we have the real demand pushed because you have 0:02:20.600 --> 0:02:24.639 this green capex that's starting to begin to be Um, 0:02:24.840 --> 0:02:28.400 you know it's gonna be behind this energy transition story 0:02:28.400 --> 0:02:31.040 because we now have a blueprint for energy transition in 0:02:31.080 --> 0:02:33.920 the US, Europe and China now something we didn't have 0:02:34.000 --> 0:02:37.559 eight weeks ago. We believe the capex has spanned associated 0:02:37.520 --> 0:02:39.800 with this green capex is going to be somewhere around 0:02:39.880 --> 0:02:43.080 sixteen trillion dollars over the next decade. Put that on 0:02:43.200 --> 0:02:46.320 par with China in the two thousand's China spit ten trillions. 0:02:46.320 --> 0:02:48.720 So in real times about the same, Jeff. We got 0:02:48.720 --> 0:02:50.600 to talk about the energy transition story in just a moment. 0:02:50.639 --> 0:02:52.160 Let's just stay on the metsos for a little bit. 0:02:52.280 --> 0:02:53.760 We have to talk about what's happened in the last 0:02:53.800 --> 0:02:56.919 ten years as well, and it started with joints that 0:02:56.960 --> 0:03:00.720 shift away from volume to value. The act of investment 0:03:00.720 --> 0:03:03.200 we've actually seen in the last decade off the back 0:03:03.200 --> 0:03:05.640 of the top of the last supercycle. Jeff, How profound 0:03:05.680 --> 0:03:07.560 is that when you start to think about the dynamics 0:03:07.720 --> 0:03:11.760 from here on out? Well, I mean all these stories 0:03:11.800 --> 0:03:15.239 have the xact same story. You had, UM, very low 0:03:15.360 --> 0:03:18.840 prices over the last decade, very poor returns in the 0:03:18.919 --> 0:03:23.680 sector under investment, no demand. Now we're adding demand on 0:03:23.800 --> 0:03:27.200 top of no supply, and we're creating really tight market 0:03:27.280 --> 0:03:31.040 whether you're talking medals, energy, agriculture, And at the core 0:03:31.120 --> 0:03:34.200 of the demand story is where the stimulus is going. 0:03:34.320 --> 0:03:38.120 Stimulus over the previous decade operated through the wealth channel 0:03:38.200 --> 0:03:42.360 and benefited higher income households. Today it's benefiting lower income 0:03:42.400 --> 0:03:46.080 households who spend more on commodities. So naturally we're seeing 0:03:46.120 --> 0:03:50.680 a much richer, more cyclical, commodity intensitive demand growth environment. Jeff, 0:03:50.680 --> 0:03:53.120 You've always drawn a distinction between all pace commodities and 0:03:53.160 --> 0:03:55.080 capex commodities and the ones that would do while in 0:03:55.120 --> 0:03:59.120 each environment, where are we now? Both are doing well. 0:03:59.400 --> 0:04:02.520 And the reason why I say that is because at 0:04:02.560 --> 0:04:06.080 this point right now, we have capex going whether it 0:04:06.240 --> 0:04:10.200 is old economy in China to take urbanization from six 0:04:11.000 --> 0:04:14.960 up to we have new economy demand through the investment 0:04:15.000 --> 0:04:18.479 in five G networks, and then we have green economy demand. 0:04:18.720 --> 0:04:21.880 In terms of thinking about energy transition, you overly that 0:04:22.240 --> 0:04:25.600 on top of under investment, you end up with relatively 0:04:25.680 --> 0:04:28.400 tight markets like we're seeing today. Well, Jeff, there is 0:04:28.400 --> 0:04:30.839 a distinction though, going back to the early two thousands, 0:04:30.880 --> 0:04:33.520 and we had the last commodity supercycle when it was 0:04:33.600 --> 0:04:36.080 driven by the boom out of China and it was 0:04:36.160 --> 0:04:40.839 all encompassing. This feels different, especially given the energy transition 0:04:40.880 --> 0:04:42.800 that you guys have been talking about, this idea of 0:04:42.800 --> 0:04:46.480 a transition to green energy. Where does oil fit in 0:04:46.720 --> 0:04:48.840 on this kind of equation? If the prices go up 0:04:48.880 --> 0:04:52.680 too high, don't the oil producers just produce more? Well, 0:04:52.760 --> 0:04:56.200 let's first talk about what happens to oil demand. Somewhere 0:04:56.200 --> 0:05:02.039 around two you begin a slow the demand growth and 0:05:02.040 --> 0:05:06.000 it's not until after the demand growth actually tips over 0:05:06.000 --> 0:05:08.640 and starts to go negative. What that means over the 0:05:08.680 --> 0:05:11.760 next five years, the stimulus effect of all of this 0:05:11.920 --> 0:05:15.480 green spending actually amplifies oil demand. Now, let me ask 0:05:15.480 --> 0:05:17.880 you this. If we know we have a blueprint for 0:05:18.000 --> 0:05:22.000 energy transition and US, Europe and China UM and the 0:05:22.040 --> 0:05:24.359 clock is ticking on oil, are you going to invest 0:05:24.400 --> 0:05:28.000 in long live oil production? The answers know, so, the 0:05:28.040 --> 0:05:30.400 only thing we're going to invest in a short cycle 0:05:30.440 --> 0:05:33.600 production in the US, Middle East and Russia. That's it. 0:05:33.839 --> 0:05:37.080 Everything else is too risky to make investments. So the 0:05:37.160 --> 0:05:40.240 hurdle rate to get investment in the sector substantially higher 0:05:40.320 --> 0:05:43.080 than what it was historically. This is fascinating, this idea 0:05:43.160 --> 0:05:45.600 that because you're going to have so much infrastructure, you 0:05:45.839 --> 0:05:47.760 you will need that much more oil to sort of 0:05:47.760 --> 0:05:51.000 finance it, etcetera. Where do the other commodities, the soft 0:05:51.040 --> 0:05:53.520 commodities that we were talking about, fit into this, given 0:05:53.560 --> 0:05:56.640 the fact that they have more elasticity as Tom was 0:05:56.680 --> 0:05:59.200 talking about, Well, I think it goes back to the 0:05:59.240 --> 0:06:02.480 point where who has been infitting from the current stimulus 0:06:02.560 --> 0:06:05.120 right now? It's lower income households. In fact, if you 0:06:05.240 --> 0:06:09.479 look at consumption by postcode in the US, and we 0:06:09.520 --> 0:06:12.640 can divided up by low income versus high income, you 0:06:12.800 --> 0:06:16.719 had turbo charged demand growth from low income households Darry 0:06:16.839 --> 0:06:19.440 January and of most but most of February, So you're 0:06:19.480 --> 0:06:23.200 seeing that filter through. That group consumes a lot more 0:06:23.320 --> 0:06:27.520 commodities than do the high income households, and that includes livestock, 0:06:27.560 --> 0:06:31.080 which has a big poll on grains and softs. Jeff 0:06:31.120 --> 0:06:33.400 Kurry don't want you to get in trouble with Mr Solomon, 0:06:33.440 --> 0:06:35.720 but I want you to go outside your remit. You're 0:06:35.760 --> 0:06:40.719 Coinlleague Jonas over the decade has been absolutely brilliant about 0:06:40.800 --> 0:06:44.600 pushing back against the high inflation crew the so called 0:06:44.640 --> 0:06:48.599 inflation anistas. Do you see the inflation of your world 0:06:48.760 --> 0:06:53.520 folding over into Jana world or is it discreet? Well, 0:06:53.560 --> 0:06:58.040 when we think about the evidence for cost push inflation, 0:06:58.160 --> 0:07:01.240 it just does not exist. It's always demand pull inflation. 0:07:01.320 --> 0:07:05.040 So the factors that are driving commodity prices um end 0:07:05.120 --> 0:07:08.120 up potentially creating some inflation risk. And I think, you know, 0:07:08.279 --> 0:07:10.480 even yonces at getting up into that two and a 0:07:10.560 --> 0:07:13.720 half percent range as we get into you know, April, 0:07:13.800 --> 0:07:16.760 in in in May, when the cops start to get 0:07:16.800 --> 0:07:20.120 relatively positive. So you know, I think the key issue 0:07:20.200 --> 0:07:23.280 here is that you look at bond yields. Bond yields 0:07:23.280 --> 0:07:25.520 are below two percent, and so even if you get 0:07:25.560 --> 0:07:29.160 to two two and a half percent inflation, these portfolio 0:07:29.240 --> 0:07:32.320 managers that hold these bond positions have a problem. And 0:07:32.360 --> 0:07:35.840 so the demand to hedge commodity and heads that inflation 0:07:35.920 --> 0:07:38.680 risk through commodities is quite high. I think that's part 0:07:38.680 --> 0:07:41.080 of what you're seeing pushing these markets higher right now, 0:07:41.480 --> 0:07:45.360 is that hedging demand to deal with even inflation creeping 0:07:45.440 --> 0:07:47.840 up into that two percent range. Jeff, we gotta finish 0:07:47.880 --> 0:07:49.880 up with some numbers and play the number game. Seventy 0:07:49.880 --> 0:07:52.000 five and Q three on w c I one are 0:07:52.000 --> 0:07:54.360 the big numbers you're looking for. Well, I think in 0:07:54.480 --> 0:07:57.720 terms of looking at demand, demand levels were much higher. 0:07:58.040 --> 0:08:00.680 Um you know in fourth quartering in the environment that 0:08:00.760 --> 0:08:03.160 what we thought, and we're drawing inventory. So the key 0:08:03.240 --> 0:08:07.520 issue is will that inventory draw began to slow down 0:08:07.520 --> 0:08:09.200 and we get in the third quarter and will we 0:08:09.200 --> 0:08:11.840 see a supply response. But I have to emphasize that 0:08:12.040 --> 0:08:15.280 you're Sarreadi Arabia right now. You've already committed to keeping 0:08:15.280 --> 0:08:19.120 production off the market till April, and supply is extremely 0:08:19.160 --> 0:08:21.600 inelastic in the near term, which means, you know, the 0:08:21.680 --> 0:08:24.520 upside risk until we start to see that supply response 0:08:24.640 --> 0:08:27.040 is quite high. Jeff always a clinic and great to 0:08:27.080 --> 0:08:29.960 catch up, sir out of London. Support in London, Jeff 0:08:30.000 --> 0:08:33.040 carry Golmu, SAX, Global head of Commodities Research, appreciated Jeff. 0:08:39.080 --> 0:08:41.480 In Washington, the government putting together at one point nine 0:08:41.520 --> 0:08:44.719 trillion dollar fiscal plan and many prominent economists on the 0:08:44.800 --> 0:08:48.000 left asking a simple question, is it too big? We 0:08:48.040 --> 0:08:50.920 asked those questions to White House National Economic Council Director 0:08:50.960 --> 0:08:54.720 Brian dece in our exclusive interview. We size this based 0:08:54.760 --> 0:08:57.679 on the needs that we see to get shots and 0:08:57.760 --> 0:09:00.800 people's arms, to get the schools reopened and get relief 0:09:00.880 --> 0:09:03.760 to families and businesses out there. And as we look 0:09:03.800 --> 0:09:06.840 at this, we look at the estimates out there of 0:09:07.280 --> 0:09:10.080 not only the output gap, but also the amount of 0:09:10.200 --> 0:09:12.840 pain we see in the labor market. Ten million people 0:09:13.120 --> 0:09:16.120 out of work still in this economy. We think that 0:09:16.240 --> 0:09:19.600 this is appropriately sized and frankly, the right kind of 0:09:20.120 --> 0:09:23.959 economic prescription to what is a unique and really precarious 0:09:24.000 --> 0:09:26.319 moment in our economy. Let's start with where the opposition 0:09:26.360 --> 0:09:28.520 is coming from, where the questions are coming from, and 0:09:28.559 --> 0:09:30.800 let me can talk about the economics. We're talking about 0:09:30.880 --> 0:09:34.800 Larry Summers, a former Democratic Treasury Secretary, Olivia Blanchard for 0:09:34.960 --> 0:09:36.560 me of the I m F and widely considered to 0:09:36.600 --> 0:09:39.319 be a dove. These are not exactly Republican cheerleaders that 0:09:39.360 --> 0:09:42.559 are raising the most the biggest questions of your administration 0:09:42.640 --> 0:09:44.439 right now. And Brian, I just want to get disappointed 0:09:44.440 --> 0:09:46.800 by that that that's where the questioning the opposition seems 0:09:46.800 --> 0:09:49.640 to be coming from. Look, we're having this debate across 0:09:49.720 --> 0:09:52.640 the board, and we welcome the opportunity to explain the 0:09:52.679 --> 0:09:54.920 contours of our plan I think one of the things 0:09:54.960 --> 0:09:58.079 that unique about this economic crisis is that this is 0:09:58.120 --> 0:10:02.760 a unique crisis and a unique pandemic driven recession. And 0:10:02.840 --> 0:10:05.520 so we think about this, what what the economy needs 0:10:05.520 --> 0:10:08.640 from the perspective of more akin to a natural disaster 0:10:08.800 --> 0:10:13.120 than a typical recession. We need to surge resources and support. 0:10:13.440 --> 0:10:16.240 And we've also seen over the past year an approach 0:10:16.280 --> 0:10:19.160 that says let's wait and see and and take incremental 0:10:19.240 --> 0:10:21.800 steps has not worked and has put us in a 0:10:21.800 --> 0:10:24.640 pretty deep hole. So we feel pretty confident on the 0:10:24.640 --> 0:10:27.160 economics that this is the right way to go to 0:10:27.240 --> 0:10:29.800 make the error in the direction of doing something that 0:10:29.840 --> 0:10:34.000 will definitively get our hands around this crisis and drive 0:10:34.080 --> 0:10:36.920 us to a stronger and more dermal recovery going forward. 0:10:36.920 --> 0:10:38.920 Have you spoke it to summers Old Blanche out in 0:10:38.920 --> 0:10:41.320 the last month or so. So we're reaching out to 0:10:42.440 --> 0:10:47.160 economists and economic experts across the board, uh, including including 0:10:47.400 --> 0:10:49.520 the folks you are mentioning. We want to make sure 0:10:49.559 --> 0:10:53.120 that we're getting input from all sides that we're considering arguments, 0:10:53.320 --> 0:10:55.640 and I want to be very clear we take very 0:10:55.720 --> 0:10:59.760 seriously the risks, the economic risks that are out there. 0:11:00.120 --> 0:11:01.760 We spent a lot of time thinking about them, a 0:11:01.760 --> 0:11:04.120 lot of time worrying about them. That's our job. But 0:11:04.200 --> 0:11:07.200 as we assess and balance those risks, we believe that 0:11:07.280 --> 0:11:11.000 the risks of further scarring in the labor market, the 0:11:11.080 --> 0:11:16.439 risk of further extending this economic pain outweigh the risks 0:11:16.480 --> 0:11:18.760 of doing too much, which is really the theory behind 0:11:18.760 --> 0:11:20.520 what we're trying to get done here. You clearly believe 0:11:20.520 --> 0:11:23.000 the risks of a symmetric and Al'm blind raise that 0:11:23.080 --> 0:11:25.319 point in an up D pace a little bit earlier 0:11:25.320 --> 0:11:27.480 in the last week, I think, Brian, I think for 0:11:27.679 --> 0:11:30.560 the individuals that I mentioned before Summers blanche out, the 0:11:30.640 --> 0:11:33.600 risk that they're raising is an inflationary one. What gives 0:11:33.640 --> 0:11:36.240 you the conviction that that's not going to be an issue. Well, 0:11:36.240 --> 0:11:38.360 it's a risk that we're keeping our eye in, and 0:11:38.440 --> 0:11:42.480 certainly it's it's something to consider. But if we look 0:11:42.520 --> 0:11:45.840 at the recent history over the last couple of decades, 0:11:45.880 --> 0:11:50.080 we've seen that the economy has the capability of running 0:11:50.080 --> 0:11:53.520 at stronger paces, and we think that the tools exist 0:11:53.559 --> 0:11:57.480 to manage those risks as we go forward. We can 0:11:57.520 --> 0:12:00.960 debate different ways of measuring the output gap, measuring the 0:12:01.040 --> 0:12:05.160 risks associated with this particular crisis. But if you sum 0:12:05.160 --> 0:12:08.440 it all together, we are at a very precarious and 0:12:08.600 --> 0:12:11.840 unique moment of economic crisis. And that's why we feel 0:12:11.880 --> 0:12:14.400 pretty confident that we will be better off if we 0:12:14.440 --> 0:12:17.719 take these actions definitively. We put ourselves on a trajectory 0:12:17.720 --> 0:12:19.680 to growth, and then we work with the tools we 0:12:19.760 --> 0:12:23.079 have to manage any challenges that we face going forward. 0:12:23.120 --> 0:12:25.000 And many people in the administration of Big keen to 0:12:25.040 --> 0:12:27.079 stress that this is about aid, it's abound relief, it's 0:12:27.080 --> 0:12:29.000 not about stimulus. And I think a question many people 0:12:29.000 --> 0:12:31.120 have had Brian, is how giving a check to an 0:12:31.120 --> 0:12:34.040 individual learned seventy five thousand dollars a year should still 0:12:34.080 --> 0:12:37.920 be considered AID relief and not stimulus. What makes that relief? 0:12:37.960 --> 0:12:40.240 What's that line between relief and stimulus? If I have 0:12:40.280 --> 0:12:42.560 a job and I earned seventy five thousand and you 0:12:42.600 --> 0:12:44.880 send me a fourteen hundred dollar check, why is that relief? 0:12:45.080 --> 0:12:47.040 What is it relief from? Well, I think you need 0:12:47.080 --> 0:12:48.920 to look at the package in its entirety, and if 0:12:48.960 --> 0:12:51.480 you look at the combination of the direct payments that 0:12:51.520 --> 0:12:57.080 you're discussing, unemployment insurance extension, and then targeted support to 0:12:57.880 --> 0:13:01.960 the lowest income families with children and essential workers without 0:13:02.040 --> 0:13:06.239 children in the aggregate. This is a very progressive, progressively 0:13:06.280 --> 0:13:09.600 designed package to provide aid principally to the bottom half 0:13:09.600 --> 0:13:12.280 of the income distribution, with the respect of the families 0:13:12.280 --> 0:13:13.960 that are out there that are middle class families that 0:13:13.960 --> 0:13:16.760 will be getting direct payments. A lot of those people 0:13:16.760 --> 0:13:19.040 are people who have lost jobs. Are one of the 0:13:19.080 --> 0:13:21.160 earners in the family has lost jobs. Others are people 0:13:21.160 --> 0:13:25.800 who are facing additional costs associated with working during a pandemic, childcare, 0:13:26.360 --> 0:13:30.400 other other costs. And this provides a bridge. It provides 0:13:30.440 --> 0:13:33.680 support to get families and businesses through to the other 0:13:33.720 --> 0:13:35.800 side of this pandemic, and to do so in a 0:13:35.840 --> 0:13:37.880 way that we don't they don't have to take on 0:13:37.960 --> 0:13:41.400 additional risk or additional economic costs during the interim. Let's 0:13:41.400 --> 0:13:43.160 talk about that bridge in a different way. There is 0:13:43.200 --> 0:13:45.960 another question as to whether this plan, given its size, 0:13:46.320 --> 0:13:48.920 removes the bridge from getting here to an infrastructure plan 0:13:49.240 --> 0:13:51.600 further down the road now, and I just wanted from 0:13:51.640 --> 0:13:54.800 your perspective, what are the constraints to further fiscal spending 0:13:55.200 --> 0:13:58.040 after this package is being delivered. It goes back to 0:13:58.080 --> 0:14:00.920 the question you raised before. This is a relief plan 0:14:00.960 --> 0:14:03.600 that is designed to provide immediate support to try to 0:14:04.000 --> 0:14:06.440 bridge and get us on the other side of this pandemic. 0:14:06.880 --> 0:14:09.480 I think that there is broad consensus and we've been 0:14:09.520 --> 0:14:11.360 hearing it over the last couple of weeks in the 0:14:11.360 --> 0:14:14.280 outreach and the engagement we've been doing from business communities, 0:14:14.320 --> 0:14:18.480 from labor, from members of Congress, from the Democratic and 0:14:18.520 --> 0:14:22.960 Republican side, that we face very significant divert maintenance, whether 0:14:23.000 --> 0:14:26.680 it's with our physical infrastructure, transportation infrastructure, energy infrastructures we're 0:14:26.680 --> 0:14:29.920 seeing play out in the past week in the events 0:14:29.920 --> 0:14:33.640 in Texas and other wise and otherwise, those deferred maintenance 0:14:33.680 --> 0:14:38.760 challenges are real. They are impeding the competitiveness of our economy, 0:14:38.800 --> 0:14:41.800 particularly in a competitive global environment, as China and other 0:14:41.840 --> 0:14:44.800 countries are investing in their own infrastructure, and there's a 0:14:44.920 --> 0:14:48.560 very strong case for us to be increasing our investment, 0:14:48.800 --> 0:14:50.600 doing it in a way that will create more jobs, 0:14:50.640 --> 0:14:54.240 better jobs, and increase the competitiveness our economy. That's a 0:14:54.280 --> 0:14:57.720 different economic objective, but one that should we are very 0:14:57.760 --> 0:14:59.760 focused on in the presence, very focused on. So just 0:14:59.760 --> 0:15:01.240 with that again, Brian, just to be clear on it, 0:15:01.280 --> 0:15:03.280 I'm just trying to understand what the constraints are in 0:15:03.280 --> 0:15:05.920 your mind to further fiscal spending, whether it's political space, 0:15:06.160 --> 0:15:08.680 whether it's fiscal space, whether it's inflation. What do you 0:15:08.680 --> 0:15:11.600 think the constraints are. Loosely, the perstring is even more 0:15:11.600 --> 0:15:13.960 in the future. Well, I think we have a fiscal 0:15:13.960 --> 0:15:16.600 framework and the President has laid out where if we're 0:15:16.640 --> 0:15:20.480 making permanent investments, those investments should be offset, and he's 0:15:20.560 --> 0:15:22.720 laid out a range of different proposals for how to 0:15:22.760 --> 0:15:25.080 do that. That makes sense in terms of our long 0:15:25.200 --> 0:15:28.920 term fiscal trajectory. If we're looking at temporary investments, particularly 0:15:28.920 --> 0:15:33.160 those that increase productivity UH and help put people back 0:15:33.160 --> 0:15:36.080 to work, improve the quality of jobs, those are investments 0:15:36.120 --> 0:15:38.000 that we need to take a hard look at UH 0:15:38.000 --> 0:15:41.440 at making right now, and in the current interest rate environment, 0:15:42.000 --> 0:15:44.920 we could feel confident that we could make consistent with 0:15:45.000 --> 0:15:47.720 a long term fiscally sustainable framework. So you've brought up 0:15:47.720 --> 0:15:50.160 the current interest right environment. As the President spoke with 0:15:50.280 --> 0:15:52.600 Chairman Palatle, who will hear from a couple of times 0:15:52.640 --> 0:15:57.240 this week. Look, we're we're as an administration in staying 0:15:57.320 --> 0:16:00.400 in contistent contact with the economic officials around the illustration, 0:16:00.440 --> 0:16:02.320 and I'm not going to read out specific conversation the 0:16:02.320 --> 0:16:06.120 Presidence has had. But we're we're in we're in continual contact, 0:16:06.120 --> 0:16:08.280 and we're a monitoring and assessing the markets as you 0:16:08.280 --> 0:16:10.640 would expect, Secretary Yell and leading our efforts and doing so, 0:16:10.640 --> 0:16:12.800 You've jumped back into the political seat very quickly, Brian, 0:16:12.840 --> 0:16:15.040 because that was a very political response to that question. 0:16:15.080 --> 0:16:17.040 So I'll ask it again. Forgive me for doing so. 0:16:17.680 --> 0:16:20.800 Has he spoken to Chairman Pals specifically as the President 0:16:20.920 --> 0:16:23.720 had that conversation with the head of the US Central Bank. 0:16:24.280 --> 0:16:26.200 I'll give you a specific answer. I don't have any 0:16:26.480 --> 0:16:29.200 conversations from the President to read out, so there's no 0:16:29.240 --> 0:16:31.600 read out, there's no conversation. Don't you find that curious 0:16:31.600 --> 0:16:33.840 that we're putting through a massive one point nine trillion 0:16:33.880 --> 0:16:36.800 dollar plan that in the future would depend on where 0:16:36.800 --> 0:16:39.000 interest rates may or may not be in the future, 0:16:39.000 --> 0:16:41.600 and yet the President hasn't had a conversation with the 0:16:41.680 --> 0:16:45.600 chairman of the Federal Reserve. Look Like, as I said myself, 0:16:45.640 --> 0:16:48.600 Secretary Yell and other senior administration officials are staying in 0:16:48.680 --> 0:16:53.280 consistent contact with our economic agencies. Uh, And that's what 0:16:53.320 --> 0:16:55.480 we'll continue to do. Okay, Well, I'm just wondering how 0:16:55.520 --> 0:16:58.040 you frame the relationship with the central Bank in the future. 0:16:58.120 --> 0:16:59.880 Is it different to what we've seen in the previous 0:17:00.000 --> 0:17:01.800 all years, Brian? What will it look like like? I 0:17:01.840 --> 0:17:04.480 think we have an approach to economic policy right now 0:17:04.520 --> 0:17:07.560 that is about addressing the current economic crisis and our 0:17:07.560 --> 0:17:10.080 focus on the fiscal policy response that we need to 0:17:10.080 --> 0:17:13.080 put into place. That's our our overriding focus right now, 0:17:13.119 --> 0:17:14.800 and that's the reason why we're working to get the 0:17:14.840 --> 0:17:17.359 American Rescue Plan passed. A little bit of time catching 0:17:17.480 --> 0:17:20.240 up with the White House National Economic Council's director Briant 0:17:20.280 --> 0:17:29.879 des Right now, this is a joy to give us 0:17:29.920 --> 0:17:33.080 perspective here at a perspective moment. Michael Kushmer joins us 0:17:33.280 --> 0:17:36.520 with Morgan Stanley, the pedigree to Princeton, London School of 0:17:36.520 --> 0:17:40.200 Economics and Columbia. But what's so important here is he's 0:17:40.240 --> 0:17:43.200 the rarest of rare commodities. He has enjoyed a seat 0:17:43.240 --> 0:17:47.399 at Morgan Stanley since time began. Michael Kushma, you walked 0:17:47.400 --> 0:17:51.560 in the door to enjoy the crash of seven. What 0:17:51.640 --> 0:17:56.320 was your crash of seven? Like? It was quite quite interesting? 0:17:56.320 --> 0:17:58.520 I've only been working for several months, and my first 0:17:58.560 --> 0:18:01.720 thought was Austin first out that I was my career 0:18:01.760 --> 0:18:03.800 in Wall Street was going to end pretty pretty quickly. 0:18:03.880 --> 0:18:07.200 But that crisis ended very fast. It did, it got 0:18:07.280 --> 0:18:09.440 It was amazing, folks to see how the markets cleared 0:18:09.480 --> 0:18:11.960 him by December. It was a it was an afterthought. 0:18:12.000 --> 0:18:13.960 Michael Christimern I want to go right now to the 0:18:14.040 --> 0:18:16.520 changes in technology. John and Lisa have a bunch of 0:18:16.720 --> 0:18:21.439 fancy questions. We are in a time of digital social media, 0:18:21.760 --> 0:18:25.080 the technology, the way of the messaging works. How do 0:18:25.160 --> 0:18:28.919 you handle a down draft now versus the way you 0:18:29.040 --> 0:18:33.359 handled it ten years ago or thirty four years ago. Uh, well, 0:18:34.000 --> 0:18:36.280 the whole, your whole, your whole day is longer. You've 0:18:36.320 --> 0:18:39.639 got more information, you've got more action and markets coming 0:18:39.800 --> 0:18:42.440 in London morning or an Asian hours, so you wake 0:18:42.520 --> 0:18:44.240 up in the morning in New York and things can 0:18:44.280 --> 0:18:48.120 be already happening. We see more volatility in treasury market futures, 0:18:48.119 --> 0:18:51.119 sometimes overnight, leading the way into what happens in New 0:18:51.200 --> 0:18:54.240 York during the day. There's large scale demand for US 0:18:54.359 --> 0:18:57.160 dollar bonds on the coming out of Asia and lesser 0:18:57.200 --> 0:19:00.399 degree out of Europe. On a regular basis, affecting credit spreads, 0:19:00.400 --> 0:19:03.960 affecting the level of interest rates on the cross currency basis, 0:19:04.080 --> 0:19:07.119 of affects a lot of demand for for US dollar assets. 0:19:07.240 --> 0:19:10.520 Was all sorts of things going on which links financial 0:19:10.560 --> 0:19:13.800 markets all over the world and relative value and opportunities 0:19:14.040 --> 0:19:16.119 to what's going on everywhere in the world, not just 0:19:16.200 --> 0:19:19.480 what's happening inside the United States borders. Well, here's an upgrade, 0:19:19.560 --> 0:19:21.399 Tom Kaine comes from Jonathan Golub and the team over 0:19:21.440 --> 0:19:25.639 at Credit suis raising his SP five hundred price target 0:19:25.560 --> 0:19:28.560 of forty three hundred from forty two hundred and citing 0:19:28.560 --> 0:19:32.840 the hottest GDP growth in some thirty five years. Forty 0:19:32.840 --> 0:19:35.359 three hundred the new price target a credit swas and 0:19:35.400 --> 0:19:37.520 that goes to the double digit callub Ben Laylor, and 0:19:37.600 --> 0:19:40.320 I also mentioned John Ferroll the distinction of Credit Suite 0:19:40.400 --> 0:19:43.000 that they still like tech. I believe that's what Mr 0:19:43.080 --> 0:19:45.800 Glub is said over the left of being very constructive 0:19:46.080 --> 0:19:48.240 on big tech over the last twelve months when others 0:19:48.280 --> 0:19:51.359 have started to shift rotate towards some other sectors. Just 0:19:51.400 --> 0:19:53.520 add to this, if you can, Michael, on the bond 0:19:53.560 --> 0:19:55.960 side of things, we've been talking about this how self 0:19:56.000 --> 0:19:58.119 limiting a move would be in the bond market if 0:19:58.160 --> 0:20:01.360 it started to infect risk assets sweat. Can you weigh 0:20:01.400 --> 0:20:05.280 in on that absolutely? You know. One of the interesting 0:20:05.320 --> 0:20:07.199 things which has happened over the last twelve months, So 0:20:07.240 --> 0:20:11.119 what had massive recovery in equity prices, Earnings from twelve 0:20:11.160 --> 0:20:14.200 months ago today are probably up. Um. We've had a 0:20:14.240 --> 0:20:17.399 traumatic rise in commodity prices from last last winter to 0:20:17.440 --> 0:20:19.720 where we are where we are today, but many safe 0:20:19.720 --> 0:20:22.920 haven assets are still higher in price or lower yield 0:20:22.920 --> 0:20:24.920 with a guard to bonds, whether the US treasuries, where 0:20:24.920 --> 0:20:28.760 it's corporate bonds, high quality corporate bonds, whether it's UM, 0:20:29.160 --> 0:20:31.840 the yend, the Swiss frank currencies like that would typically 0:20:31.840 --> 0:20:34.880 function as safe haven's. Well, right now we're talking about 0:20:34.880 --> 0:20:37.680 boom times, the commodity prices rising quite sharply the next 0:20:37.680 --> 0:20:40.160 twelve months, the fastest growth we seed in the United 0:20:40.200 --> 0:20:43.199 States in decades. We can see a situation where the 0:20:43.240 --> 0:20:46.040 US economy grows faster than the Chinese economy in two 0:20:46.040 --> 0:20:48.080 thousand twenty one, which I think no one would have 0:20:48.119 --> 0:20:50.600 believed was possible um a year or two ago or 0:20:50.640 --> 0:20:53.399 several years ago. So all these things are are changing 0:20:53.440 --> 0:20:56.359 the narrative of what's what's going on in the world, 0:20:56.440 --> 0:20:59.639 and this boom conditions could could continue. What that means 0:20:59.800 --> 0:21:02.240 is at the levels of interest rates we thought were 0:21:02.480 --> 0:21:06.080